You may be taking a risk by co-signing that loan

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Hillsdale.net - Hillsdale, MI

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Posted Sep. 14, 2012 at 7:48 AM

Posted Sep. 14, 2012 at 7:48 AM

Hillsdale, Mich.

With the economic downturn, many people are finding they no longer qualify to borrow money for large purchases. These people, in turn, may try to find a cosigner to enable them to get the loan and make the purchase they are seeking. Before cosigning a loan, you should consider that, since you are helping someone who couldn’t get the loan on their own, you are taking on a risk that a professional lender has already turned down.You must also keep in mind that any loan you cosign will be reportable as an outstanding debt on your credit report, which may affect your credit rating or prevent you from securing other credit, even if that cosigned loan is kept current. There is no requirement that collection action be sought against the primary borrower before pursuing a cosigner. If you are deemed more collectable than the primary borrower, you are the easier avenue for collection – and you could end up paying the total loan obligation. If the primary borrower files for bankruptcy and s/he is released from the debt, you are still on the hook for the full outstanding debt.

Before you agree to cosign, make certain you understand whether you will have to pledge any property to secure the loan – and understand the consequences if such a commitment is required. Additionally, determine if your cosigning obligation can be negotiated so that you are limited only to pay the principal balance of the loan, not late charges or attorney/court costs. Also, make certain the lender is required to notify you in writing if the borrower misses a payment. The sooner you know about a loan default, the quicker you are able to see if an alternative payment arrangement can be arranged.

Retain copies of all of the loan documentation for your future reference, or in the event there is a dispute between the involved parties.

In the end, before you decide to cosign a loan, understand you are obligated to pay in the event the primary borrower does not.Darwin L. Vandevender, Attorney at Law, Vandevender Law Office, P.C. In Hudson, can be reached at 517-448-5050. His column appears every other Friday.